Thursday, January 31, 2008

Garmin (GRMN 72.15) should provide a good entry point tomorrow morning, as the NASDAQ futures are down on Google's penny miss. But Super Bowl XLII should provide analysts an excuse to upgrade Garmin on the potential of their new navigation phone, nuvifone, being unveiled during their Super Bowl commercials.

It has all the gizmos you'd want in a phone, along with Google search and Garmin's navigation system converging into a sleek, cool looking GPS phone, and it will be Garmin's ad for the Super Bowl. Why do I know think it will be such a hit?

Because last year, Garmin's commercial was voted the worst of Super Bowl. This year the last shall be first! And the last time I touted Garmin, it popped 16 points the next day.

Friday, November 16, 2007Yesterday, I said "Grab Garmin." Let me put it out here again:

Garmin (GRMN 85.60) is down 40 points from it's high, as the market is all worked up that GRMN will make a counter-offer higher than TomTom's bid for Tele Atlas. Rational? Not! At 2:30 a.m. this morning, Garmin and TomTom reached a global settlement on all their intellectual property litigation, and this morning, Piper came out with a call saying they felt that Nokia's deal with Navteq would now close. Which means that GRMN has reached a behind the scenes deal on maps without busting their bank.What happened today? They announced a deal with Navteq until 2015 on maps!http://aaronandmoses.blogspot.com/2007/11/garmin-up-16-as-advertised.html

I'm not saying you'll get 16 points like last time, but the stock should trade to 77 by Monday.

And it's 23-17 Giants. The Packers wore short sleeves in -15 below weather. Does anyone think this out- psyched their opponets? But sports are different than markets! And yesterday, Ackman and Charlie Gasparino hit a wary market with low blows, and they took it to it's knees.

Somehow I think that the hits from Ackman and Charlie aren't going to stick. The Fed cut rates to 3% which is fine for the "non-financed" based economy. And by being behind the curve, the Fed keeps downward pressure on rates. Just look at the two year at 2.13%. These lower rates will help the ARM market; and the rest of the mortgage market. Now what Ackman wants, is for the stock market value of MBI and Ambac to disappear. Of course he is short these stocks a ton. The best point he brought up was this, aptly summarized by Mish:

Does a company deserve your highest Triple A rating whose stock price has declined 90%, has cut its dividend, is scrambling to raise capital, completed a partial financing at 14% interest (now trading at a 20% yield one week later), has incurred losses massively in excess of its promised zero-loss expectations wiping out more than half of book value, with Berkshire Hathaway as a new competitor, having lost access to its only liquidity facility, and having concealed material information from the marketplace?

Now look at Plaxico's prediction. Tom Brady laughed at it, because he didn't give the Patriots offense any credit. How about 45-42 was his response. If you want to sell a story, make it believable. Just like shortsleeves in below zero weather didn't work; 23-17 just ain't gonna cut it!

The only thing that makes it appear that the bottom is approaching is that policy makers may finally be waking up. The Fed cut .75 basis points, and then .50 basis points because they dragged their feet, and didn't act pre-emptively. It's the same with the bond insurers. You need the rescue plan before the AAA ratings get cut. Otherwise, it's going to cause much more havoc in derivative land, and in the regional banks balance sheet. You can't put the genie back in the bottle!

So pay me a bit now, or pay me a bunch later!

So what happens next? Yesterday you sold the rip; today you buy the dip, and then sell the rip, and you do it until the market says otherwise.

And Wilbur Ross and his interest in the monolines? That's over. He already got his mug on television. Now I think his wallet has gotten as cold as the weather was in Green Bay!

Wednesday, January 30, 2008

Reuters is miffed about Charlie's "gut feeling" that the rating agencies were going to downgrade the monolines. At 3:08, when Gasparino made his statement, the market started to tank. here's a bit of the Reuters report:

"My gut is telling me Moody's and S&P are going to downgrade either one or both," Gasparino said on air. CNBC later posted a report on its Web site saying the network had learned that the downgrade could come as early as Wednesday. The report cited no sources for the information.

Traders attributed the market's about face to the Gasparino report, noting the S&P 500 slid rapidly from its session high, reached at about 3:08 p.m.

"Once he started talking, we got the sell-off," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey. "Any time (Ambac and MBIA) go down, they take the entire market with them."

Since Charlie has been talking to Pershing Square's Bill Ackman; and Ackman sent his scathing letter to the whole world in financial regulation, did Ackman know the consequences and tip off Gasparino?

Here's the Bloomberg story on the rating's downgrades after the close.

Jan. 30 (Bloomberg) -- Standard & Poor's said it cut or may reduce ratings on $534 billion of subprime-mortgage securities and collateralized debt obligations, the most sweeping action in response to rising since home-loan defaults.

The downgrades may extend bank losses to more than $265 billion and have a ``ripple impact'' on the broader financial markets, S&P said in a statement today. The securities represent $270.1 billion, or 47 percent, of subprime mortgage bonds rated between January 2006 and June 2007. The New York-based ratings company also said it may cut 572 CDOs valued at $263.9 billion.

The reductions may increase losses at European, Asian and U.S. regional banks, credit unions and government-sponsored enterprises such as Fannie Mae, Freddie Mac and the 12 Federal Home Loan Banks, S&P said. Many of those institutions haven't written down their subprime holdings to reflect a drop in market values and these downgrades may force them to recognize losses, S&P said.

``It is difficult to predict the magnitude of any such effect, but we believe it will have implications for trading revenues, general business activity, and liquidity for the banks,'' S&P said. The ratings company will start reviewing its rankings for some banks, especially those that ``are thinly capitalized,'' it said.

S&P downgraded $50.1 billion of subprime-mortgage securities, none rated higher than A+. More than 69 percent of the AAA rated subprime securities from 2006 and 46 percent from the first half of 2007 were placed on review.

The Fed cut 50 basis points today, and then we had this adverse reaction by the rating agencies. Does anyone besides me find this action peculiar? Was Ackman's letter the prod that caused the rating agencies to move?

Figure that on out for yourself, but the timing seems to be strangely propitious and peculiar.

Especially if you were short, and you wanted to blunt the impact of a Fed rate cut!

William Ackman sent a 20 page letter regarding the bond insurers to the rating agencies; to Moody's, FGIC, and S&P, to the SEC, our heads of banking in the House and Senate, the insurance commisioners, the head of the Big 4 accounting firms-PricewaterhouseCoopers, KPMG, Ernst & Young, and Deloitte and Touche, the AG's of NY, Connecticut and Idaho, the Bermuda Monetary Authority, and Chairman Bernanke! You can read it here:

"In an attempt to improve the level of discourse in the marketplace regarding potential losses in the bond insurance industry, we are releasing today a dynamic financial model (the "Open Source Model") that contains extensive detail on the precise CDO and related January 30, 2008 exposures of the insurance operating subsidiaries of both MBIA and Ambac...

In order to facilitate a comprehensive and accurate estimate of probable losses in the bond insurers’ exposures, we believe that you, as their regulators, must require the bond insurance companies to provide full disclosure to the market of their entire portfolio of insured exposures. This should include not only confirmatory data on CDO and related RMBS exposures detailed in the Open Source Model, but also municipal and other structured finance exposures, especially those exposures that have been or are in remediation, are rated below-investment grade, require claim payments or otherwise have been or are carried on so-called "classified watch lists." Additionally, companies must disclose which exposures have been reinsured along with the names and specific exposures of their reinsurance counterparties. Only with a complete understanding of all of the bond insurers’ gross exposures to potential losses can the market gain a complete understanding of the insurers’ capital adequacy...

Under the assumptions used in the Open Source Model, the losses to MBIA and Ambac from these exposures are materially higher than suggested by the rating agencies or the bond insurers themselves....

Ambac will incur approximately $11.61 billion of losses on its net RMBS and ABS CDO exposures...

MBIA will incur approximately $11.63 billion of losses on its net RMBS and ABS CDO exposures and $12.56 billion of losses if one reincorporates certain 2007 CDOs of ABS that have been reinsured....

The market’s loss of confidence in the bond insurers’ creditworthiness will make these loss postponement transactions more difficult (and likely impossible) in the future. Accordingly, we believe that historically low default rates for non-general obligation, muni-related bonds understate the level of losses that will be sustained on a going-forward basis. We expect, therefore, that non-taxpayer supported municipal finance will begin to generate material losses in the future....

Lastly on the subject of transparency, MBIA’s fourth quarter conference call scheduled for tomorrow will be "listen only" and will not allow live questions from analysts and investors. The company will only answer questions it selects from those submitted by email in advance of the call. This is a further reduction in transparency to the markets from MBIA’s typical earnings call where a select group of analysts and investors are screened and then permitted to ask questions. We intend to release the list of questions we email to MBIA to the public. We believe these questions will assist the markets in understanding the company. If the company thereafter chooses not to answer these questions, its silence will speak for itself...

Please note that Pershing manages funds that are in the business of trading – buying and selling – securities and credit default swaps. While Pershing currently maintains a net short position in MBIA Inc. and Ambac Financial Group and may have other positions in the industry, Pershing may change its position regarding the companies and possibly increase, decrease, dispose of, or change the form of its investment in the companies for any or no reason.

I heard whispers of this letter this morning. Today I wrote about monolines, and the Fed, as I thought that would be the story. It was. Meredith Whitney had the opening salvo of which I put on this blog. Charlie Gaspraino fired the next shot on CNBC, after the Fed cut when the market had rallied almost 200 points off of it's lows, warning of rating downgrades for the monolines. Fitch then cut the ratings of FGIC before the close. S&P then put $270 billion of securities on ratings watch after the bell. Tomorrow, Ackman releases his questions and probably this letter.

NEW YORK (Dow Jones)--Credit rating downgrades at major bond insurers could cause banks to take another $40 billion in write-downs in 2008, disappointing investors who were betting U.S. financial institutions got the worst of their losses behind them in the fourth quarter, Oppenheimer analyst Meredith Whitney said Wednesday in a note to clients.

Those losses will be concentrated in just three banks: Merrill Lynch & Co. (MER), Citigroup Inc. (C) and UBS AG (UBS), which Whitney estimated together hold about half of the industry's exposure to protection written on complicated debt instruments by insurers MBIA Inc. (MBI), Ambac Financial Group Inc. (ABK) and ACA Capital Holdings Inc. (ACAH).

The heavy concentration of exposure persuaded Whitney to drop her previous belief that the big insurers are too big to fail. She now sees the problem as one facing a few banks rather than the financial system as a whole, and as a result doesn't think a bailout is viable.

"While we had previously believed the monoline insurers MBI and ABK were too important to fail due to the threat of systemic risk and thus would likely be bailed out, we no longer think systemic risk is even realistic or a bailout of the monolines even viable," Whitney wrote. "The implications of no rescue plan/bailout are clearly negative for these companies."

I'm sorry but listening to Trish Regan (I don't mind watching her) on CNBC today almost made me puke. She was interviewing guests and was asking questions that suggested that the strong Durable Goods report could allow the Fed to just cut .25 basis points tomorrow. The cut tomorrow has nothing to do with the economy; it has to do with the health of the banking suystem! And the Fed, with its TAF (Term Auction Facility) now knows the health of the banking system. And it sucks!

The latest results of the TAF show that $30 billion was borrowed at 3.123% for 28 days. Two weeks ago the rate was 3.95%.

Valero (VLO 54.90) is trading up 3 in the pre-market after reporting decent earnings versus Wall Street's dumbed down expectations. Tesoro (38.39) and Western Refining (WNR 20.16) should bounce on this news.

Has tech had it?Apple simply didn't do that well. Google's stock is floundering even if Google isn't. Garmin's been pretty much destroyed. Microsoft's in the same place it started after that great quarter. Texas Instruments' surprises to the upside and does nothing; same with Corning. VMWare's simply awful, dragging down EMC, which I unfortunately on for Action Alerts PLUS, to a below market multiple on 2008 earnings. IBM preannounced up and then beat the preannouncement and nobody cares and Intel's just awful.

Which leads me to conclude that, yes, tech has indeed become pretty much irrelevant. The big growth drivers, exciting product cycles, big innovations, don't exist. eBay, IACI and Yahoo! are just pathetic, all without leadership and declining earnings. Nobody cares about new kinds of cell phones or music or movie deliveries. It is all just too darned competitive.http://www.thestreet.com/p/rmoney/jimcramerblog/10400844.html

Apple Insider had this to say regarding an email from Steve Jobs circulated to employees:

In a private communication last week, Apple chief executive Steve Jobs acknowledged the beating his company's shares have taken during this time of economic uncertainty, but remained confident that investors would inevitably recoup their losses and then some. "Wow... what a remarkable last few days," he wrote in an email to employees, a copy of which was obtained by AppleInsider. "Our stock is being buffeted around by factors a lot larger than ourselves."The Apple co-founder expressed sadness for many of the company's investors who may have seen their investments fall under water, but encouraged those with positions to put the matter into perspective by examining the performance of Apple shares over the past 24 months."As you can see, we have outperformed many other blue-chip tech companies, including Google," he wrote, tacking on a stock performance comparison chart for illustration. "I continue to believe that our fundamentals - our remarkable people, our clear and focused strategy, our new product pipeline, our 200+ retail stores, our $18 billion of cash in the bank with no debt, etc., will serve us well in the coming months and years."Jobs, whose 5.54 million shares make him the single largest shareholder in Apple behind Fidelity Investments, was among the hardest hit by Wall Street's recent sell-off, with losses in company shares alone totaling an estimated $377.5 million on paper since the start of the new year.In closing out his remarks to employees, Jobs remained upbeat, reiterating confidence that those who remain loyal to their positions in Apple would reap the benefits in the long run."I believe that investors who stay with us will be rewarded as the market's confidence is restored over time," he wrote. "Hang in there."

The Apple iPhone unlocking issue explains the "missing" phones, but this market is tired of the games that companies are playing. Merrill Lynch wrote off most of the kitchen sink, and the stock, was rewarded. Steve Jobs, has always played the ridiculous game of under-promising and over delivering for the past three years. I've highlighted it here:

Last week, SLM's CEO, Albert Lord was contrite and apologized for his behavior on a previous conference call where he said he wanted to get the f%#@ out of there.

Seems it wasn't quite a change of heart, but of finances. Today it was announced that JC Flowers wouldn't have to pay the $900 million breakup fee, and that the banks involved, led by BofA and JPMorgan would just extend SLM's $31 billion line of credit for 364 days.

Looks like Blackstone took heart from JCFlower's win, and thus skedaddled on Alliance Data Systems.

Sunday, January 27, 2008

Disney just made headlines for getting fined $1.4 million by the FCC for a "naked backside" in ABC's 2003 NYPD Blue episode. No kidding. But it took five years for the FCC to figure it out? It wasn't quite the "flash" that the networks want you to think, ala Janet Jackson at the Super Bowl. But then, that fine was only $550,000 for a 1/2 second. ABC got off cheap!

But Disney's (DIS 28.68) stock is absurdly cheap at these levels. You can buy it for the theme parks and their other assets and get it's 80% ownership of ESPN thrown in for free! Beside the Disney Channel, A&E, Lifetime, and ESPN, you have 10 TV stations; of which six are located in the top ten markets in the US, and 5 radio stations and radio Disney, and the websites ABC.com and Disney.com. Throw in Hannah Montana, Pixar, Disney Cruises, Walt Disney World, Disneyland, Tokyo Disney, 51% of Disneyland Paris, 43% Disney Hong Kong, the resorts, the vacation clubs, and it's Film and entertainment division, you have assets that can't be duplicated at 13x earnings, and this time at the bottom in the stock price, you don't have the Bass Brothers puking up their stock in a margin call.

Good grief the NY Times (NYT 14.66) is being given away, but the Sulzberger family and the dual structure of the stock is keeping buyers away. Isn't there anyone left with a Murdoch sized ego?

The Times was started with $110,000 on September 18, 1851, and it's founder and Whig, Henry Raymond, had this to say: "We shall make it a point to get into a passion as rarely as possible." That describes the Times current stockholders! No one has any passion or gives a whig about the company. Especially since the Times is a terrible steward of it's resources. Anyone remember the $410 million they paid for about.com?

But the Boston Globe and the 20% ownership the New England Sports Network, and the 17% ownership interest in the Boston Red Sox, makes you think that somebody besides Jack Welch wants to buy the Times, as these are still highly coveted assets.

And at this price, it's worth buying just for the 6.2% yield until somebody with enough moxie challenges the Times with a gigantic bid, just as Murdoch did with the WSJ.

Friday, January 25, 2008

What a joke! There are stories this morning that the private equity folks are mulling starting their own bond insurance business. Wrong. It will never happen.

They only can come in and pick up an existing monoline like Wilbur Ross is trying to do with AmBac (ABK 11.33), which could be taken over by next weekend.

Does anybody think the other jokers in private equity actually want to insure bonds in a new business? Are you kidding me? We had a downturn in the economy, and private equity just about walked away from every equity deal that they were going committed to do. Now you think these instant gratification clowns are going to get into a business where the payoff is over a 30 year period?? I'll say it again: It will never happen.

What could happen, is that they may want to buy an existing business that is mispriced. Those business already have the residual stream from the bonds, and private equity only exists to buy companies where the instant gratification is in the mis-pricing of it. And only in this environment, when there is this much stress in the system, could private equity even be talked about in the papers as being insurers!

Everyone knows the rate that the monolines had to pay to get cash. But consider this: If there were credit default swaps guaranteeing a deal's price in case private equity would walk away from it, what do you think it would trade at? The upfront payment would be as much as the premium on the deal!

Wilbur Ross, however, is a different story. Let him takeover ABK and inject cash. At least his word his good.

But for heavens sake, don't believe the idea that the other clowns in private equity are going to start a new monoline business.

In the week ending 18 January 2008, the decrease of EUR 41 million in gold and gold receivables (asset item 1) reflected the sale of gold by one Eurosystem central bank (consistent with the Central Bank Gold Agreement of 27 September 2004).

31 March 2005 - The ECB’s gold salesThe European Central Bank (ECB) has completed a programme of gold sales amounting to 47 tons of gold. These sales are in full conformity with the Central Banks’ Gold Agreement, dated 27 September 2004, of which the ECB is a signatory. It is not the ECB’s intention to sell more gold for the first year of the agreement, starting on 27 September 2004 and ending on 26 September 2005.

Now they sold 47 metric tons of gold on March 31, 2005. The average price of gold for that quarter was $427. At $427, a metric ton is worth $13,728,050. Timesx47 tons=$645,218,350. Today with gold at $911.80, a metric ton is worth $29,314,370. Timesx47 tons=$1,377,775,390. The difference? $732,557,040. But they did this countless times, to the tune of $107 billion!

If you look at their balance sheet, on line 1, you''ll see that the ECB has $210,663,000,000 billion Euro's of gold, or about $310 billion. But the ECB has been selling the physical asset of gold, for an electronic currency. And they left $107 billion on the table by selling their gold at lower prices for paper dollars!

Now today, SocGen is all in a huff because they jammed billions and billions and billions of futures into the market to take a $7.3 billion dollar loss, when the market couldn't take the selling, and the bank declares the handling (ie panic selling) of the trade gone awry as prudent. The markets were down 5% that day, and a joker from SocGen's head of asset management at the bank, Philippe Collas said: "It's not possible that our covering operations contributed to the market's fall.'' Are you kidding me????? They dumped $73 billion into the market in one day!

The chairman, Daniel Bouton said, "Had we not acted swiftly, the loss could have been 10 times worse." When did dumping massive amounts of stock into a panic become prudent??

Now you know why SocGen didn't take Bouton's resignation. He dumps into a panic, and they lose $7.3 billion. The head of the ECB, Trichet, has been continually dumping gold, leaving $107 billion on the table! But SocGen's says their loss is the trick of a genius rogue trader! And now, tonight the Financial Times is reporting that the ECB knew about the trades, and gave SocGen permission to postpone it's announcement, which is what I speculated this morning!

Anyone ever reminisce about their "hometown?" Or listen to Bruce Springsteen's song, "My Home Town?" You know the song; here are it's lyrics:

I was eight years old and running with a dime in my handInto the bus stop to pick up a paper for my old manI'd sit on his lap in that big old Buick and steer as we drove through townHe'd tousle my hair and say son take a good look around this is your hometownThis is your hometownThis is your hometownThis is your hometownIn '65 tension was running high at my high schoolThere was a lot of fights between the black and whiteThere was nothing you could doTwo cars at a light on a Saturday night in the back seat there was a gunWords were passed in a shotgun blastTroubled times had come to my hometownMy hometownMy hometownMy hometownNow Main Street's whitewashed windows and vacant storesSeems like there ain't nobody wants to come down here no moreThey're closing down the textile mill across the railroad tracksForeman says these jobs are going boys and they ain't coming back to your hometownYour hometownYour hometownYour hometownLast night me and Kate we laid in bedtalking about getting outPacking up our bags maybe heading southI'm thirty-five we got a boy of our own nowLast night I sat him up behind the wheel and said son take a good look aroundThis is your hometown

The song came to my mind tonight as the Republicans debated here in South Florida, while the Democrats were campaigning and throwing barbs in Dillon, South Carolina. The median household income in Dillon is $20,900, and the median price of a home is $56,000. 26% of the city is below the poverty level, and it has a 10% unemployment rate.

Ben Bernanke grew up Dillon, SC and had his public school education there.

Thursday, January 24, 2008

Western Refining (WNR 19.14) is being whispered as a takeout. If it is, it wasn't advertised in the options market. But the stock is down from the mid 60's, and Valero has rebounded 7 points in the last two days. Can Western join the rally? I think it can without the takeout.

If the Fed rate cuts, can stimulate the banks and retailers; then the consumer will be able to afford gasoline at the pumps. That's the 30 second story. It's definitely worth a shot at these levels; and at these prices, good things can happen.

It also a seasonal play. Last year the refiners made the start of their big moves at this time. Maybe history will repeat itself.

Indymac (IMB 5.43) rocketed almost three points today before settling back. Takeover rumors, and the temporary lifting of the conforming limits for loans from Freddie and Fannie Mae to $729,750 until the end of the year spurred the buying.

IndyMac can refinance the negative amortization loans, and then sell them to Fannie and Freddie Mac. They got thrown a lifeline!

MEMC (WFR 71.52) is trading up 4 and change in the afterhours after reporting good earnings. This will change the psychology on the solar names which have been beaten up. Solarfun (SOLF 16.15) Canadian Solar (CSIQ 19.17) and First Solar (FSLR 171.46) are all trading buys for 20-35% moves in a hurry by the Fed cut next week!

Did SocGen tell Trichet that they had this $7 billion problem on their books? That would explain his steely presence in the face of the rout. And now, he can use the guise of economic conditions to lower rates, when he feels economic conditions allow it.

The ECB doesn't micromanage like the Fed. They left rates at 2% for 1 1/2 years, and raised them just to 4% while our Fed was going willy nilly down to 1%, and up to 5.25%.

MSFT (31.93) reports earnings after the close. It should be bought before earnings. Gates will be in the headlines at Davos with a speech on a new approach of "creative capitalism" to help the 4 billion poor people in the world.

His foundation, with $70 billion, from himself and Warren Buffett, is changing how philanthropy works. No one yet gets it. But they will. Who designs products and services for the impoverished?

His speech may puzzle at Davos, but Mr. Softee's results should dazzle on Wall Street!

Two owners of ChannelRe, (Partner Re and RenaissanceRe) which provides backup re-insurance to MBIA on $40 billion of bonds, last week wrote the value of their stakes down to zero. We see what SocGen did this morning.

Yesterday, rumors were that NY Insurance commissioner, Eric Dinallo wanted the banks to ante up $15 billion for the monolines in a bailout.

Anyone remember the SIV fund bandied about by Treasury? It started at $100 billion, went to $40 billion, before going to zero.

When the Fed cuts next week, the banks will only have to commit a couple billion to paper away this problem, as the markets heal themselves.

But a $15 billion number sure helped the rally, and caused the shorts to scramble!

The European markets are rocking, but it takes a $7.3 billion dollar loss by a single SocGen trader in European stock futures to help them along. The idea is now that smug Trichet of the ECB will have to backpedal on his decision not to cut rates.

Lost in this news, was the exposure by SocGen of $525 million to both AmBac and MBIA, and $325 million to FGIC in counter party exposure from which they "hedged" their AAA asset wrapped securities.

It also calls into SocGen's risk management procedures. I hardly believe that is was just one rogue trader with a "get a hunch bet a bunch" predisposition, that SocGen wants the world to believe, but that's the party line.

If the US markets affected Asia, then doesn't Europe's policies affect the US? That's the message we are seeing this morning. In a global economy, you need coordination of policies. At least that is what the bears see.

However, when the Fed cuts next week, people will have to look further out than the next day of trading. Eventually, the low rates on cash will force pension funds to shift assets into stocks for actuarial reasons.

It's obvious the Fed was way behind the curve. They still are. It's now apparent that the Fed thought by tinkering and experimenting, they could fix this mess. They couldn't. So yesterday, they capitulated. Finally. And now the markets are now pricing in a 50 basis cut next week, with 40% odds and going higher of a 75 basis point cut.

But the bears haven't capitulated! Every rally has been met with selling. But these gap down openings are the tonic to start and cure the ills of this market.

The Fed cut, but Europe didn't. Japan was up 2%, China 3% and Hong Kong 10%. Europe opened higher. The DAX, CAC and FTSE all opened up 100, but are now down 3%, 2% and 2%. Asia goes up on a relief rally that maybe the Fed belatedly gets it, while the bankers in Europe still have a lesson to learn.

And they'll learn it the hard way.

You can't put the recession genie back in the bottle with rate cuts that are too late.

But with the futures showing the NAZ down 50, the Dow down 188, and the S&P 500 down 27, you buy em here for a trade.

Revenues were $3.24 billion, and earnings were .68 cents. On April 13, 2005, Apple gave this for guidance:

“Looking ahead to the third quarter of fiscal 2005, we expect revenue of about $3.25 billion and earnings per diluted share of about $.28.”

Revenue was $3.52 billion, and earnings were .37. On July 13, 2005 Apple gave this guidance:

“Looking ahead to the fourth quarter of fiscal 2005, we expect revenue of about $3.5 billion and earnings per diluted share of about $.32.”

Apple posted revenue of $3.68 billion and a net quarterly profit of $430 million, or $.50 per diluted share. On October 11, 2005 Apple gave this guidance:

“Looking ahead to the first quarter of fiscal 2006 which will span 14 weeks, we expect revenue of about $4.7 billion. We expect GAAP earnings per diluted share of about $.46, including an estimated $.03 per share expense impact from non-cash share-based compensation, translating to non-GAAP EPS of about $.49.”

Apple posted revenue of $5.75 billion and a net quarterly profit of $565 million, or $.65 per diluted share, in this 14-week quarter. On January 18, 2006, Apple gave this guidance:

“Looking ahead to the second quarter of fiscal 2006, we expect revenue of about $4.3 billion. We expect GAAP earnings per diluted share of about $.38, including an estimated $.04 per share expense impact from non-cash stock-based compensation, translating to non-GAAP EPS of about $.42.”

The Company posted revenue of $4.36 billion and a net quarterly profit of $410 million, or $.47 per diluted share. On April 19, 2006 Apple gave this guidance:

“Looking ahead to the third quarter of fiscal 2006, we expect revenue of about $4.2 to $4.4 billion. We expect GAAP earnings per diluted share of about $.39 to $.43, including an estimated $.04 per share expense impact from non-cash stock-based compensation, translating to non-GAAP EPS of about $.43 to $.47.”

The Company posted revenue of $4.37 billion and a net quarterly profit of $472 million, or $.54 per diluted share. On July 19, 2006 Apple gave this guidance:

“Looking ahead to the fourth quarter of fiscal 2006, we expect revenue of about $4.5 to $4.6 billion. We expect GAAP earnings per diluted share of about $.46 to $.48, including an estimated $.03 per share expense impact from non-cash stock-based compensation, translating to non-GAAP EPS of about $.49 to $.51.”

The Company posted revenue of $4.84 billion and net quarterly profit of $546 million, or $.62 per diluted share. On October 18, 2006 Apple gave this guidance:

“Looking ahead to the first fiscal quarter of 2007, we expect revenue of $6.0 to $6.2 billion and earnings per diluted share of $.70 to $.73.”

The Company posted record revenue of $7.1 billion and record net quarterly profit of $1.0 billion, or $1.14 per diluted share. On January 17, 2007 Apple gave this guidance:

“Looking ahead to the second fiscal quarter of 2007, we expect revenue of $4.8 to $4.9 billion and earnings per diluted share of $.54 to $.56.”

The Company posted revenue of $5.26 billion and net quarterly profit of $770 million, or $.87 per diluted share. On April 25, 2007, Apple gave this guidance:

“Looking ahead to the third fiscal quarter of 2007, we expect revenue of about $5.1 billion and earnings per diluted share of about $.66.”

The Company posted revenue of $5.41 billion and net quarterly profit of $818 million, or $.92 per diluted share. On July 25, 2007, Apple gave this for guidance:

“Looking ahead to the fourth fiscal quarter of 2007, we expect revenue of about $5.7 billion and earnings per diluted share of about $.65.”

The Company posted revenue of $6.22 billion and net quarterly profit of $904 million, or $1.01 per diluted share. On October 22, 2007 Apple gave this guidance:

“Looking ahead to the first quarter of fiscal 2008, we expect revenue of about $9.2 billion and earnings per diluted share of about $1.42.”

The Company posted revenue of $9.6 billion and net quarterly profit of $1.58 billion, or $1.76 per diluted share. Today Apple gave this for guidance:

"Looking ahead to the second quarter of fiscal 2008, we expect revenue of about $6.8 billion and earnings per diluted share of about $.94.”

In Apple's 10Q, they have this to say about their Performance-Based Cash Incentives:

The performance goals are aggressive. Thus, there is considerable risk that payments will not be made at all or will be made at less than 100%. For the past three years, the performance goals have reflected double-digit growth in both revenue and operating income.

It is apparent, that Apple has always exceeded their posted estimates. It would be interesting to see what the performance goals are of the Performance-Based cash incentives; otherwise, why would Apple continually spew out "guidance" that isn't?

I guess the moral of this exercise is that you don't buy their guidance, or sell your stock on it.

According to the Fed's statement, William Poole voted against the rate cut because he did "not believe that current conditions justified policy action before the regularly scheduled meeting next week."

What planet is he on?

The Fed will cut again next week. And next week, Poole doesn't have a vote. So once again, he has shown the world what a fool he is.

AAPL is trading down to 137 in the afterhours after "tepid" guidance. $18 billion of cash, increased margins, a higher revenue stream of iPhone, iPod touch, and Apple guides to .94 for the next quarter? Apple guided for $1.42 for this quarter last quarter; they did $1.76. Now the street is seizing this guidance as real?

Buy Apple here at 137. The questions by the analysts indicate they will reiterate their buy recommendations in the morning, as they are calling Apple on the carpet for this garbage guidance. It's just a number they feel "comfortable attaining."

It's collateralized debt obligations, and credit default spreads. That's the shoe that is dropping, and Bank of America, just reminded the market of that this morning by writing down $5.28 billion of CDO's this quarter.

Now we have rumours of a coordinated rate cuts between the US, UK and the Fed. Coordinated? Just cut already.

Now that corn and cotton have opened limit down, maybe the Fed doesn't have to worry about inflation!!

I just can't kind find the words to describe the incompetency of the world's central bankers.

Monday, January 21, 2008

Now that everyone is worried about the contra party risk, look for investors to hammer J.P. Morgan, with contra party concerns regarding it's derivative exposure.

For the third quarter of 2007, the notional amount of credit derivatives, the fastest growing product in the derivatives market, increased 19% from the second quarter to $14 trillion. Credit default swaps represent 98% of the total amount of credit derivatives.http://www.occ.treas.gov/deriv/deriv.htm

What is most interesting that when we deal in these "shadow regulated" markets, nobody loses any money. The netted total credit exposure on $172.2 trillion of derivatives exposure, is $1.06 trillion dollars. On these huge amounts, the banks took charge offs in the third quarter of just $119 million dollars. How ironic is that? We have over $107 billion in writedowns due to subprime, but we can't find anything wrong but a hundred million or so in $172 trillion of derivatives. Now we know why they are so opaque!

And the bank with the largest derivative exposure is JP Morgan. Now you know why it was able to "sidestep" all the problems the other banks faced. They wrote their contracts on derivative "napkins," instead of in the exchange markets!(Page 22 in the link below)http://www.occ.treas.gov/ftp/release/2007-137a.pdf

The played better than the Pack, but Green Bay squandered opportunity after opportunity, to pull off a victory. The football gods were giving the Packers the chance to pull the game out in the cold, but even it was too cold for the ghosts of Lombardi.

Now can you imagine me saying that the Pack played better than the Giants? Then how can Congress glad hand Bernanke's completely clueless performance at the Fed? Could they have gotten away with that in sports?

The Fed could of cut rates deeper which would of caused the other central bankers around the world to cut. But they didn't. Then, we just had housing in a depression, and autos in a recession. Deep interest rate cuts could have prevented the pain from spreading. Interest rates were the only anecdote the Fed had to stop the death spiral in home prices. But the Fed took it's time. Now, the contagion of lower home prices has spread throughout the economy, and is being felt worldwide. So now we are in the recession, that the Fed still doesn't see existing!

Now we have this mess, and it is getting downright ugly! The downgrading of the monolines will cause hundreds of billions of dollars of securities to be sold by those who only can own AAA paper. And it will force the recognizing of billions of more losses on banks already tattered balance sheets.

The Fed originally thought the only problem was "contained" sub prime and that it wasn't "contagious." We know how ridiculous that was. But now it's making the same mistake again. By looking at the LIBOR rate which has fallen due to the Fed's TAF plan, the Fed thought problems were being resolved. Instead the contagion has spread to any securitized asset backed and now to commercial real estate.

A perfect example is Northern Rock Plc. The central banks thought they had figured out to stop the run on this, but it couldn't line up buyers until the UK said it would guarantee the bonds backed by the home loans.

If our Fed can learn anything from this, it is that if you want buyers, you need to guarantee the bonds. So cut rates now, gaurantee the monolines, and let Buffett take the residual business over with an earn-out. It will stem the panic, and give the market breathing room. Unfortunately, our academic Fed will think they are following Cramer's script, so they'll want to try something else.

Sunday, January 20, 2008

Saturday, January 19, 2008

When it's reported on your balance sheet as "short-term-investments." In Texas Instruments latest 10Q, they had this to say:

Total cash includes $926 million of asset-backed fixed income securities, divided about equally between mortgage-backed securities secured by non-subprime-mortgage pools and non-mortgage-related asset-backed commercial paper. These asset-backed fixed income securities continue to be rated either AAA, A-1 or P-1. To date, we have collected all principal and interest payable on these securities and expect to continue to do so as they mature.

I'm sure the brokerage firms, who will now have more writedowns because of the blow-ups of the monolines, probably know what type of investments these companies cash in their "short-term-investments" are invested in.

Why did you make a threatening gesture to my servant when you saw him this morning? That was not a threatening gesture, I said, it was only a start of surprise. I was astonished to see him in Baghdad, for I had an appointment with him tonight in Samarra.W. Somerset Maughham

Unlike the Fed, which thinks we have all the time in the world, (except when it comes to a stimulus plan) in one day, the AAA insurance rating scam on the bonds is over. Here's what quickened the demise of these insurers. You need to watch it, even if it's 13 minutes as Cramer hastened their untimely exit. It's great theatre!

What is interesting about all of this, is that Cramer said he spoke up, while Wall Street shut up, because he wasn't concerned about the consequences. He recommended viewers to read Appointment in Samarra to understand how Wall Street works. That's John O'Hara's book about a man, Julian English, who upset the apple cart of his life, by first throwing a drink in the face of Harry Reilly, and then the consequences of it. This time the drink is Cramer's rant, thrown into the face of the fiction of the financials of the monoline insurers!

What is more funny, is that the next day Julian's wife Caroline, had a talk with him:

She lit a cigarette. "Well, you fixed it last night. No point in going why you threw that drink at Harry, but I just want to tell you this much, you've made an enemy for life.""Oh no. Naturally he's sore, but I'll be able to fix it. I can handle that.""That's what you think. I'll tell you something. Have you any idea how fast news travels in this town?"

Ambac Financial abandons it's capital raising plans, and promptly get cuts to AAA. But if you want to insure AmBac or MBIA against default, check out what Bloomberg had to say. To paraphrase Julian Robertson, "It's a doosy!"

Credit-default swaps tied to MBIA's bonds soared 10 percentage points to 26 percent upfront and 5 percent a year, according to CMA Datavision in New York. That means it would cost $2.6 million initially and $500,000 a year to protect $10 million in MBIA bonds from default for five years. The price implies that traders are pricing in a 71 percent chance that MBIA will default in the next five years, according to a JPMorgan Chase & Co. valuation model.Contracts on Ambac, the second-biggest insurer, rose 12 percentage points to 27 percent upfront and 5 percent a year, prices from CMA Datavision in London show.Ambac's implied chance of default is 73 percent, according to the JPMorgan data.

Friday, January 18, 2008

The S&P 500 is down 15% from it's peak, along with the NYSE composite.

Housing starts are at a 16 year low, the NASDAQ Comp is 16% off it's high and only 16% of CEO 's expect general economic conditions to improve in the first half of the year.

Retail is in the worst slump in 17 years, and only 17% of CEO's see economic conditions in their industry to improve in the next six months.

The NASDAQ 100 is 18% off it's high.

The Russell is now down 20% from it's peak.

Where's 19? It's not the October 19th of Black Monday in 1987, even though it feels like that. It's the October 19, of 1999 when the 60th anniversary of the Wizard of Oz was released. And after serving 19 years, Greenspan, the maestro behind the curtain relinquished his chairmanship to Bernanke, who on July 19, last year, assured the world that sub-prime was contained. He should watch the wizard behind the curtain!

This Fed is behind the curve, and oblivious to the curtain. But his actions are so alarming to market participants they are puking up stocks in disgust. The result? Wonderful prices across the board in stocks.

With rate cuts coming, and a congressional stimulus plan, it's not time to lose your heads in an emotional market.

It's time to do some buying and to cover some shorts. It's the quickest way to the yellow brick road!

We had two hacks from the Fed speak today. Bernanke was pathetic, and Pianalto speaking before the Association for Corporate Growth in Cleveland, echoing Bernanke had this to say:

"Risks remain to my inflation outlook, including the risk of losing the public’s confidence in the Federal Reserve’s commitment to price stability. I will continue to closely monitor the inflation situation, including the behavior of inflation expectations."

Hey Fed, get a clue. The markets have already lost confidence in this Fed! The only ones that haven't lost confidence in the Fed is Congress!

But then, we had Congresswoman Marcy Kaptur of Ohio, identify Bernanke as Paulson!!

But he won't cut rates immediately? Now that Ambac Financial is trading at 5.75, down over $7 on the day, and the very real possibility of bankruptcy is on the horizon for the monoline insurers, will Ben finally get it?

"It's time to pounce for JP Morgan & Co. Chief Executive James Dimon and other top bosses of financial companies that have avoided a serious battering from the credit crunch...

But the real excitement likely is yet to come. After a three-year drive to slash costs and invest heavily in technology and core businesses, Mr. Dimon yesterday declared that the battered financial landscape "just may make it more likely" that J.P. Morgan will make acquisitions, as analysts and investors have widely anticipated.

"In terms of buying assets or buying companies, we are very open-minded," Mr. Dimon said in a conference call with analysts.

Mr. Dimon has long coveted institutions like Atlanta's SunTrust Banks Inc. and Washington Mutual Inc. of Seattle. Shares of both those banks have fallen sharply since the credit crunch struck in August, making them potentially cheaper targets. Washington Mutual, the country's biggest thrift, has been hit especially hard by its exposure to the mortgage industry."

Did anyone watch the futures at 3:00 am EST? The Dow futures were up 86, the NAZ futures were up 20, and the S&P were up 11.5. Now they are down across the board.

This morning, Merrill wrote down $14 billion. Now that Merrill has come clean, when are the monolines going to show us their exposure? Merrill said that $2.6 billion of it's exposure was with insurers who can't pay.

When they do, they'll have a balance sheets comparable to Mike Nifong, the Durnam district attorney, who withheld evidence and falsely accused the three Duke college kids of rape.

He declared bankruptcy with $180 million of liabilities.

But these parties are now declaring liabilities that make headlines, but are not economic realities. But it will allow Thain to recapture gains in the future, and get a nice pay package with his brilliance.

Wednesday, January 16, 2008

Potash (POT 134.69) traded down to 127.82, then rallied 10 points to 138, before closing at 134.69. This stock has now made it's top and is heading lower.

The Ag stocks moved because nothing else was working; therefore they had much higher multiples than they deserved because of the scarcity of winners. Now the market is reappraising these stocks and it's not going to be pretty.

In POT's last quarter, they wrote down the value of $112.5 million of AAA securities by $20 million. Anyone think the value of these has gone up?

Other short-term investments consist of AAA-rated auction rate securities with maturities extending through 2046, including collateralized loan obligations with a face value of $48.3 million and collateralized debt obligations with a face value of $84.2 million. As of September 30, 2007, the balance recorded in other short-term investments was $112.5 million (face value $132.5 million), resulting in an unrealized holding loss of $20.0 million. The unrealized loss represents the company’s estimate of possible diminution in value as of September 30, 2007 resulting from the lack of current liquidity for these investments at period-end. The decline in value is presently considered temporary.

The company is exposed to liquidity and credit risk on its other short-term investments due to the current lack of liquidity for the company’s investments in auction rate securities that has existed since August 2007; therefore the company is holding such securities longer than the approximately 28 days that was originally anticipated. While the company is uncertain as to when the liquidity for such securities will improve, it currently expects liquidity within a year.

Now $20 million may not seem like much, but back in August, this stock was at $80 a share. Wall Street is re-pricing these stocks, and will look at these stocks with much more scepticism.

In this environment, who is going to pay 10X sales for a fertilizer company?

More yakking from another Central Bank. He said he was not "unaware of the mitigation to price developments." In other words, the economies are weakening so fast, that we won't have to worry about inflation.

Then shut up and cut. The market selloff in the US is a recognition of the recession risk, and the utter contempt that the markets have for Bernanke.

And that was displayed in the stock prices in the after hour trading yesterday.

Sure looks that way to me. The only significant groups that have held up in this market are Ag, coal and gold. Ag got hit yesterday, coal is rolling over, and gold will probably be sold just because it is up so high.

The cracks in the economy have now become fissures, making furrows on even the most botoxed policymakers forehead. Consumption by a certain percentage of the population has completely stopped, as they've decided to keep their homes. The housing industry has been in a recession for over two years; autos 18 months, and the financials six months. Now restaurants have joined them.

So now the Fed, in their august wisdom, can recognize what the market has the last six months. Stock prices are now discounting the recession we are now in, and you can just forget about government statistics of if we are or not.

The Fed was too slow in cutting rates, and they are still just yakking instead of whacking. The two year is now at 2.46%, with Fed funds at 4.25%. But now, stocks are so cheap you can just about buy anything across the board. The Ultra QQQ Proshares (QLD) traded at 77 last night, and can be picked up here at 78.70, and the Russell 2000 ETF (IWM 69) can be bought here.

Monday, January 14, 2008

IBM 97.67 beat numbers and is giving tech life, as it looks to gap up 10, along with the market. In tech, Research in Motion (RIMM 93.70) and Apple (AAPL 172.69) should be at trading bottoms here, while IBM should be sold up 10.

Sunday, January 13, 2008

Fed officials are unlikely to cut rates before their scheduled Jan. 29-30 meeting, because Mr. Bernanke's speech has already recalibrated market expectations. But that could change if the outlook worsens sharply in coming days...There is speculation the FOMC met by conference call ahead of Mr. Bernanke's speech on Thursday, but the Fed hasn't confirmed any such meeting.

Looks like we have a Benanke trading put until the Fed cuts. This time the trade should last more than 30 minutes!

Merrill looks like it's getting $4 billion, and Citigroup $14 billion this week. Last week, we had withdrawals of $22 billion in our stock funds; now the sovereign wealth funds are putting $18 billion in Merrill and Citigroup.

All right! Justice in the NFL!! The Pretenders in the NFC are out of the playoffs! I had the Giants to win straight out against the Cowgirls; screw the line! Play the title game in the Frozen Tundra, with it snowing!

Club Libby Lu, had an essay contest in which the winner would receive two tickets to a Hannah Montana concert. They had 1000 entries. A Texas woman, Priscilla Ceballos helped her 6 year old daughter construct a story on how her Father was killed by a roadside bomb in Iraq. She won the essay, until they found out the story was made up.

The Packers gave two tickets to the "honorary captain" on a playoff essay contest. They had 5000 entries.

It was won by a nun, Sister Sean Marie, who wrote this:

Loyalty, enthusiasm, positive thinking, and prayer for the safety of the players are my qualifications for being an honorary captain. These attributes have been steadfast through good seasons and disappointing ones.I have known well the previous teams and have respected each individual player since 1945. My Dad taught me at an early age all the fine points of the game and expected me to know numbers, plays, rules and strategies....now for a girl, this was a novelty at the time. My last game with him was the "Ice Bowl" and by then I was already a Manitowoc Franciscan Sister who did most of her play calling from a chair near the radio or TV. This game was a challenge.I was stuffed, long habit and full garb into a sleeping bag up to my nose and almost bunny hopped over the bleachers on the last play. Lucky for me,the people in front of me had left a minute before the end so I had a spectular view from the 50 yard line. if the game had lasted any longer, my fingers would have been permanently stuck to my rosary beads.This year's team has had some of the enthusiasm and drive of the "glory days." It has brought back many memories and I would be proud to be on the field with them to show my support of their dedication to the game and improvement as players.Each team in our history has included much character building, dedication and unselfishness by the players, and the wisdom and drive of the coaches. There always has been a diversity of personalities but a common goal.....love the game , give your all, and respect the fans who support the team. I would bring this same philosophy to being an honorary captain. Sister Sean Marie

Saturday, January 12, 2008

My brother Mark's best friend Greg Gratton had just passed away, and my brother gave the eulogy at the funeral. I thought I would share his words.

Greg often shared during our times together that I missed my calling. “You need to consider a career teaching logistics at a university somewhere…

In reality, Greg’s the teacher, and the subject matter isn't logistics, its life. Greg taught me more about life than any individual has, and he continues to teach as we pause and reflect on how he lived life.

At work the lessons learned from Greg was the importance of being a servant leader, to always look at and for the best in an individual. Never tear down, always build up…

The Greg we knew at work extended past those four walls, and in Greg I learned what the true definition of a father is. His sons Michael and John are well armed and ready for life, and in Dad they also saw a husband, who loved and adored his wife.

Greg’s commitment to Kathy, Michael and John was real and unadulterated. When you look at your own mortality every day as Greg had to, suddenly the tasks and decisions in life become quite easy to sort – you sort to the core of your beliefs and values. Greg’s actions did all the speaking here, words were never necessary.

Greg taught me how to prioritize. God and Family first, friends next, and then everything else.

In Greg and Kathy’s extended family, I saw what heaven on earth looks like – a Zuleger family get together. Deer Camp and Deer Camp stories. Garage meetings, well lubricated with banter, discourse, unconventional terms of endearment, the Green Bay Packers and, of course, what I like to call the “nectar of the gods,” beer. The love, support and friendship that serves as the fabric of this extended family draws you in and changes your values.

Early in my relationship with Greg, I heard many stories centered around this gang, and then later Stephanie and I have had the honor and privilege of actively participating with these same folks. In this I learned that you measure worth by what you give in love, support and friendship.

Greg’s battle with cancer demonstrated the depth of character in this man. I learned, felt and tasted what real self discipline, sacrifice and humility is. Greg never complained, someone else always had it worse. Greg never questioned why, rather he always gave thanks for what he had. Greg never wanted the soft sell, he always insisted on every card facing up. Greg never gave in. Greg never, never, never quit. In his fight with death, Greg taught me how to live…

Above all else, Greg taught me about friendship. We started our lives on very similar paths and upbringings. As we reached adulthood, our individual paths took different directions, yet so much of our life experiences remained similar. Our two paths meeting in May of 2004 has changed me forever, and I’m thankful that the Lord allowed this to happen.

True friendship crosses all boundaries, it doesn’t judge, hold any grudges, allows opinion with impunity. True friendship multiplies laughter, divides pain and sorrow, and carries absolute respect for each other. Never a put down, actions ahead of words. A desire to improve each other, a self less desire to help, and with true friendship comes profound pain and sorrow at the loss of your friend.

I have known Greg for three plus years. And it was an absolute honor for me. I can only imagine what it must be like for the family and friends that can count their time with Greg in decades, rather than years.

I lost a son 20 years ago. Jamie was two and a half years old when he left the arms of his earthly father for the arms of his heavenly One. At this young age, Jamie didn’t get a chance to truly experience an earthly Dad.

I know that right now, my friend Greg has stepped in and soon Jamie will learn what a Dad is. I also know that when it comes my turn to cross over the threshold, Greg will be waiting to greet me with Jamie at his side. With an iced down cooler within reach, and long necks in each of their hands. And once again, we will fellowship together as we drink in the nectar of the gods...

Today, sitting back, watching the Packers beat the Seahawks in the snow at Lambeau, I toast my brother, and his best friend Greg with the nectar of the gods.

And the little blonde boy, next to the hand of God in the mural above, is my brother's son Jamie, who just met his Dad's best friend.

Wall Street will soon have you believing that we're only going to eat at McDonald's and shop at Walmart. But if you are shopping for a REO home from Countrywide, you had better make your decision quickly before thinly capitalized CFC goes into BAC hands.

Time to play the guessing game for Wall Street rumors. When Countrywide drew down their credit line for $11.44 billion on August 16, the lead bank was JPMorgan, with $6.44 billion due May 7, 2008, and $2.64 billion due May 11, 2011. Tonight JPM is breathing easier.

Cramer mentioned Washington Mutual on Mad Money tonight, as the next rumored buyout candidate. If Bank of America gets a sweet deal with Countrywide (some put protection) look for various rumors to be thrown around with JPM being mentioned as an acquirer.

Today Treasury said they were not instrumental in suggesting that BofA buy Countrywide. That hasn't stopped some from speculating that BofA had some sour derivative contracts with CFC, and thus, the shotgun marriage. Here's what Jim Sinclair had to say:

Let us assume one of the largest mortgage entities, Countrywide, who would have certainly been a significant player in the credit derivative market, has a very major credit derivative position with Bank of America. Lets' assume that Countrywide was the entity that had the obligation to perform, but now clearly can't. If Bank of America was to buy the non-performing other side of the many transactions and Countrywide become one entity with Bank of America, as they would, would the transactions between them not evaporate in the merge? It absolutely would. What would you then have to mark down on those specific transactions? I believe NOTHING would have to be marked down any further as two sides of the transaction became one.

So don't be surprised if they float Indymac (IMB 5.78) to be on the auction block either. The longs are looking for action and the shorts will now be nervous, as these stocks are no longer a one way bet.

Thursday, January 10, 2008

AXP is trading down 3.37 in the after hours to $45.55. This stock is coming gift wrapped. They missed! Who cares! The Fed is in aggressive rate cutting mode. The stock needs to be bought here, in the after hours, as now the rules have changed.

With the shotgun marriage rumour of Countrywide with BofA, does that mean the Fed cuts before their January meeting? Substantive would mean that, versus the regular procedure of cutting during the meetings, if I was parsing it legally. But does that matter now? If CFC can get bought, what does that mean to WaMu? (WM 13.53)

It means just go out and buy. The Fed may finally have our back. And it only took the unwinding of the entire housing industry, and systemic erosion of the capital of the banking system to awaken them.

Gold is now at $880, finally higher than the Krugerrand my college girlfriend's mother proudly showed me in January of 1980. By Valentine's day, her ardor for gold had cooled, and so had it's price. Now we have the inflation hawks looking at gold, but gold is rising because it is money, and money is being hoarded. In a deflationary environment, the value of money goes up, but at these prices it time to take some gold off the table.

Gold is an indestructible commodity. It's not eaten like wheat, or burned up as oil. So why do the talking heads talk about jewelry demand for gold? Gold prices now move because of investment demand. The talking heads say oil is high because of speculators, but gold is high because of inflation?

At least Bernanke speaks today. We'll have another tidbit of information that we can dissect again.

Citigroup is looking to get $10 billion by Monday, and Merrill Lynch wants $4 billion from Middle East investors and sovereign funds. And Citigroup, who claimed their dividend was safe, will now cut it.

Wednesday, January 9, 2008

Jessica Alba, who dissed Zac Efron of High School Musical as a kid with makeup said she's never used her body or looks to get business. "Contrary to how people may feel, I've never used my sexuality. That's not part of it for me." Anyone remember any of her lines in any of her movies? (Tan lines don't count.)

Goldman Sachs today said we would have 1% negative growth in the 2nd and 3rd quarter, and that the fed funds rate would be down to 2.5% by the third quarter. Unlike the Fed, they already recognize the forthcoming rate cuts. And unlike Alba, they recognize reality.

Last night in New Hampshire, Hillary beat the polls, the pundits and Obama. Perceptions in markets and politics can change quickly. When Reagan, spoke at a Teamsters luncheon in 1980, he spoke of the Carter "depression." He was called on the carpet for misidentifying a depression. His response? "As far as I am concerned, the line between recession and depression cannot be in the strict economists' terms, but must be measured in human terms. When our working people-including those who are unemployed-must endure the worst misery sine the 1930s, then I ought to recognize it that they consider it a depression."

And Wall Street is definitely in a funk worthy enough to be called depression.

Last night, Jim Cramer said that if Bernanke would quit the Federal reserve, the DJIA would go up 1500 points. So, with kudos to Reagan I have a new Wall Street definition: "A recession is when your neighbor loses his job. A depression is when you lose yours. Recovery is when Ben Bernanke loses his!"

Tuesday, January 8, 2008

Is our Fed this brain dead? Do they not recognize the financial contagion that is taking place everywhere? We started with defaults in subprime and the resultant contagion in commercial paper and asset backed securities. Then we had the blow ups in private equity buyout financing, and accelerating default rates in credit cards, student loans, and automobile receivables. Now the cracks in the commercial, and the worldwide real estate market are visible to even the Pollyanna's.

Friday, the unemployment rate increases, and today, we find out that the consumer isn't using their ATT phone or going out to eat at Chili's. Couple that with today's rumours of Countrywide's bankruptcy while the bond insurers stare at the precipice of the cliff of capital shortages.

Meanwhile the Fed fiddles, while Wall Street burns.

What is this Fed thinking?

A few months ago, we just had to worry about the financial problems facing Wall Street. But now the incrementalism approach of the Fed has given us economic headline risk.

Saturday, January 5, 2008

It is well known that the "Green Book" forecasts, made by the Fed's understudies, have been consistently more accurate than their bosses at the FOMC. Which is why they are embargoed for five years.

Anyone looking at the Fed's prepared abstracts, will see that the Fed loves projecting out for the next 30 years, using various economic forecasting tools at their disposal. So how well do they do? Does anyone care about these 30 year forecasts?

So let's look at Bernanke's semi-annual testimony before Congress on July 18, 2007. Here's what he said:

Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007, with growth then strengthening a bit in 2008 to a rate close to the economy's underlying trend. Such an assessment was made around the time of the June meeting of the Federal Open Market Committee (FOMC) by the members of the Board of Governors and the presidents of the Reserve Banks, all of whom participate in deliberations on monetary policy. The central tendency of the growth forecasts, which are conditioned on the assumption of appropriate monetary policy, is for real GDP to expand roughly 2-1/4 to 2-1/2 percent this year and 2-1/2 to 2-3/4 percent in 2008. The forecasted performance for this year is about 1/4 percentage point below that projected in February, the difference being largely the result of weaker-than-expected residential construction activity this year. The unemployment rate is anticipated to edge up to between 4-1/2 and 4-3/4 percent over the balance of this year and about 4-3/4 percent in 2008, a trajectory about the same as the one expected in February.

Friday, January 4, 2008

Maybe now the Fed will get it. The weakness in the dollar is a function of the weakness in our economy, excaberated by the Fed's gradualism. As Iowa woke up the political pundits, this job number will finally awaken the Fed.

And as Obama's Hope, trumped the wife of the husband from Hope, this number finally trumps the Fed's fear of inflation, to the fear of an economy slipping into a recession who only belatedly recognize the deflationary spiral of declining housing prices.

That's what the bond market sees already. The Fed funds rate is at 4.25%, and the two year note is at 2.70%. What in the world is the Fed thinking?

Today, the market becomes even more scornful of the Fed. "They have no idea! They have no idea!"

"My Father's from Kenya, and my Mother's from Kansas"...and Obama whips Hillary in Iowa. Those who feel the weakness and the pinch in the economy and want change identified with Obama, while Huckabee got the votes of those who shared his beliefs. In a few weeks, Romney's campaign crew will probably send their resumes to the Federal Reserve. Soon, some of the patrician Republicans will get a whiff of deflation, after Mitt decides to quite spending his money on hairspray and attack ads.

Although the rally in bonds is getting a bit extended, most people miss the effect of this administration's misguided energy policy on the price of food. Remember how ethanol was supposedly the alternative to high oil prices? It never was, but someone apparently thought it would help jump start Iowa. Iowa wasn't quite what they ordered. Now we have higher food prices because of our ethanol policy, and a moronic Fed that sees the higher prices in food and energy as inflation, and not as an administration mistake. So I'm back to bonds. If there is so much inflation, why have bonds rallied so much?

We have higher prices in these commodities, because of poor utilization of our resources, and we have deflation in our largest assets, our homes. In this economy, housing cannot be supported at the current level of interest rates, thus the declining prices and high foreclosure rate. The debt can't be serviced at these levels when home buyers have expectations of declining home prices. They need lower rates on their mortgages to induce these homeowners to buy. This is the viewpoint of Pimco's Bill Gross, who was just named by Morningstar as the bond manager of the year.

So inflation and deflation seem to exist, but we are really just twisting terms, where academics just argue between monetarists and Keynesians. Money is multiplied through credit; but credit isn't money when it can't be serviced. It's just a bad debt. So financial assets get repriced, and they get repriced lower, just like homes have been to induce buyers. But this time, they need to be repriced lower to discount the aberrant policy decisions of our Federal Reserve.

But Iowa should wake up both sides of the political aisles. Nothing like job insecurity in the political arena to get politicians to act. And the market is now low enough, for it to get a decent trading rally.

And since, we saw how the pundits, had placed the wrong bets on in Iowa, it's time to place some bets back on the casino stocks. Start with this triumvirate in Macau, as they should rally first. Wynn Resorts (WYNN 105.68), Las Vegas Sands (LVS 95.37) and Melco (MPEL 10.71). Melco had some junket operators that were directed their high end VIP action to their Crown Macau, and this, along with a corruption trial, pressured WYNN and LVS. At these prices, you should own them all, and in the order mentioned.

It was so open, the trainers would jokingly call the steroid injections “B12 shots,” and soon the players had picked up on that little code name, too. You’d hear them saying it out loud in front of each other: “I need to go in and get a B12 shot,” a player would say, and everyone would laugh. (Of course, that was the kind of joke you really only made around other steroid users, because obviously they were in the same boat as you. What were they going to do, tell on you? Not hardly.)

But Conseco also had this to say about Clemens:

Here’s something you probably don’t know about Roger Clemens: He’s one of the very few baseball players I know who never cheated on his wife. I was amazed by him, to be honest. His wife should be very proud of him. You see all these other guys- oh, my god, every chance they got, they would be hitting the strip clubs. They would have extra girls staying in the team hotel, one room over from their wives, so they could go back and forth from room to room if they wanted. They would have their choice of women in damn near every city imaginable. Roger was the exception to that. I went out with him a bunch of times when there were beautiful women around, and he had a lot of opportunities and never took them. I was with him enough times to realize: This man never cheated on his wife. He was one of the rarities, the anomalies, in baseball.